“The King is dead, long live the King!” – real estate and technology

10/05/2018

Download

Tim Gibson and Guy Barnard, Co-Heads of Global Property Equities, discuss how real estate is being reinvented and rejuvenated by rapid advances in technology and how their portfolios are actively positioned to gain from these evolving trends.

The bricks and mortar business of real estate is often seen as a traditional asset class, or ‘old economy’ business, which will be negatively impacted by technological advances. While this is true for some areas, the asset class is also evolving in tandem with technological trends and changes in consumer needs, presenting us with many attractive investment opportunities.
 
What is going on?
Increasingly sophisticated technology, rapid urbanisation and shifts in demographics have fundamentally changed consumer behaviours and altered the needs and uses for real estate. This is an area we are increasingly focused on. We aim to identify the potential winners and losers (Chart 1) from the structural shifts ignited by technology and actively position our portfolios to benefit from the evolving trends.
 
Chart 1: Real estate & technology: winners and losers in e-commerce


Source: Janus Henderson Investors. Pictured is the Rolling Acres Mall in Ohio opened 1975, closed December 2013. At one point it housed more than 140 stores.
 
What is the impact?
 
Internet infrastructure is creating new asset classes
Technological advances and increasing digitalisation are driving massive demand for computing power and an explosion of data. Physical internet infrastructure such as data centres and telecommunications cell towers are growing to cater to this need and have become an integral part of the 21st century real estate universe, giving rise to new asset classes.
 
We expect surging demand for cloud computing, growth of Internet of Things (IoT) applications, creation of smart cities and the growth of big data will continue to drive demand for data centres. Meanwhile, rising expectations for better performance and service from mobile devices are boosting mobile carrier spending on cell towers.
 
….and changing traditional ones!
The rise of e-commerce has changed the face of retail and epitaphs have long been written about the death of physical shopping malls. However, the growth of e-commerce is fuelling demand for modern logistics space, for example, traditional warehouse ‘sheds’ have turned into the new shops of the world. E-commerce can require as much as three times more logistics space than traditional brick-and-mortar retailers. Strategically-located logistics assets are becoming more important in order to fulfil ever increasing expectations for online delivery speed − Amazon’s fastest Christmas Eve delivery took only 13 minutes, from click to delivery!
 
Logistics enjoys one the most positive fundamental backdrops among the traditional real estate sectors. The sector benefits from the continued tailwind of online retail growth, which is expected to outpace a fairly disciplined supply response. We believe this positive trend will endure as internet retail remains underpenetrated in many countries globally (Chart 2).
 
Chart 2: Global e-commerce sales have much room to grow
 

Source: e-Marketer, Prologis Research, MWPVL Supply Chain. Estimated data from 2017 to 2021. Estimates may vary and are not guaranteed.
 
What are we doing about it?
As these trends typically develop gradually and rarely happen overnight, we have become very selective in our holdings of retail landlords in recent years, focusing only on ‘best in class’ operators, which we believe have embraced this structural shift and have actively adapted in order to emerge as winners.
 
Meanwhile, we have increased our positions in global logistics owners and developers who are at the forefront of modern logistics development, e.g. Goodman in Australia, Segro in Europe and DCT Industrial in the US. We also invest in a number of data centres and tower companies eg. Equinix, InterXion and NextDC, where we expect secular growth trends to remain highly favourable for the foreseeable future.
 
Our fundamental belief is that identifying structural growth within real estate markets is key; particularly in an environment where we are seeing a reversal in monetary policy and many countries and sectors are moving late into the real estate cycle, characterised by increasing vacancies and more supply. We expect the impact of technology to remain a structural driver of growth for companies in our real estate universe and embrace that change within our actively managed, focused portfolios.
 
These are the views of the author at the time of publication and may differ from the views of other individuals or teams at Janus Henderson Investors. Any securities, funds, sectors or indices and securities mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.
 

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

For promotional purposes.

Anything non-factual in nature is an opinion of the author(s), and opinions are meant as an illustration of broader themes, are not an indication of trading intent, and are subject to change at any time due to changes in market or economic conditions. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. No forecasts can be guaranteed and there is no guarantee that the information supplied is complete or timely, nor are there any warranties with regard to the results obtained from its us.


Important information

Please read the following important information regarding funds related to this article.

Janus Henderson Horizon Asia-Pacific Property Equities Fund

Specific risks

  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • The Fund's value may fall where it has concentrated exposure to a particular industry that is heavily affected by an adverse event.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.
  • The Fund may invest in real estate investment trusts which can involve different risks to investing directly in the underlying assets. Such schemes may increase risk due to factors such as restrictions on withdrawals and less strict regulation. The value of your investment may fall as a result.

Risk rating

Janus Henderson Horizon Global Property Equities Fund

Specific risks

  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • The Fund's value may fall where it has concentrated exposure to a particular industry that is heavily affected by an adverse event.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.
  • The Fund may invest in real estate investment trusts which can involve different risks to investing directly in the underlying assets. Such schemes may increase risk due to factors such as restrictions on withdrawals and less strict regulation. The value of your investment may fall as a result.

Risk rating

Janus Henderson Horizon Pan European Property Equities Fund

Specific risks

  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • The Fund's value may fall where it has concentrated exposure to a particular industry that is heavily affected by an adverse event.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.
  • The Fund may invest in real estate investment trusts which can involve different risks to investing directly in the underlying assets. Such schemes may increase risk due to factors such as restrictions on withdrawals and less strict regulation. The value of your investment may fall as a result.

Risk rating

Share

Important message